An outlook on green finance and environmental debt: Creative output perspectives from quantile and dynamic panel evidence

Despite the rapid expansion of green finance, existing studies provide limited insight into why its environmental effectiveness varies across countries and how innovation-driven creative output conditions its impact on environmental debt. Consequently, this study examines the interaction between green finance and creative output in influencing CO₂ emissions, water stress, and deforestation in OECD countries from 2014 to 2021. In this study, creative output refers to the innovation-driven and cultural knowledge capacities of governments, measured through scientific publications, patenting activity, and cultural/creative service exports, which enable financial flows to translate into measurable environmental outcomes. Additionally, the current study employs a two-stage approach, combining System-Generalized Method of Moments (GMM) and Instrumental Variable Quantile Regression (IV-QR). The research identifies that green bonds alone have even adverse effects on environmental performance. However, their effect is significantly enhanced when integrated with innovative potential, as represented by innovation, cultural production, and knowledge systems. These results confirm both the Environmental Kuznets Curve and the Innovation Systems Theory, showing the non-linear and heterogeneous nature of the contribution of green finance to the environment. The study provides policy guidance, demonstrating that OECD countries must align green financial instruments with innovation systems, strengthen project screening frameworks, and integrate creative-innovation capacity into climate finance strategies to generate measurable ecological benefits.